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CPEC — Potential of a lasting legacy

Foreign policy is always based on the principle of self-interest whether this is economical, political, security or even a promotion of ideals and beliefs. The USA was never a physical colonial power but has used its military might and control of the world’s financial system to leverage its foreign policy objectives. It has had a stop start relationship with Pakistan and one very much short term oriented and reactive to geo-political events. Since the events of 9/11, it is estimated that the USA has provided Pakistan with over $ 20 billion in the form of economic and military related aid. Very little of this is tangibly visible in the country and notwithstanding the recent changes to the government, the US still remains unfavorably viewed by the majority of the Pakistani population.

This approach contrasts completely with China with whom Pakistan share a publically declared “All Weather Friendship”. A few years ago, former Chinese president, Hu Jintao further elaborated on this friendship as being “higher than the Himalayas, deeper than the Indian Ocean, and sweeter than honey”. While geography is the major raison d’etre of differences in US-Pakistan relations compared to China, perhaps the most striking difference is the legacy that money flows into Pakistan from the two countries will leave behind.

The China Pakistan Economic Corridor (CPEC) is the name given to a collection of infrastructure investments in Pakistan that are a combination of government to government and government to private enterprises. There are also a number of planned private joint venture agreements between Chinese and Pakistani companies. The latest value of these 67 projects tops $ 50 billion and consists of road building, power generation, mass transit, port development and the development of special economic and industrial zones. A key component of the CPEC is the road and railway linkage between Kashgar in Western China and the Chinese run port of Gwadar in Balochistan province. This effectively creates a new strong network spine and which gives China access to a deep water port for cost effective exports from the west of the country which in turn allows a further step in its urbanization and development plans.

On the face of it, the CPEC looks like a tremendous win-win situation for Pakistan, China and regional players (India excluded). Successive Pakistan governments have dragged their feet with regards to creating a workable energy plan that alleviates industrial inefficiency and domestic shortages. Approximately 60% of the value of projects identified within the CPEC is power related (http://cpec.gov.pk/energy) and if all are executed, they will add over 16,000 MW to Pakistan’s power generation. The power projects will generally be set up as joint venture entities between Pakistani and Chinese companies on the back of concessionary interest rates and with a pre-determined power purchase agreement by the Pakistan government.

The word ‘connectivity’ is extensively used throughout official CPEC literature and it will be through the planned expansion of railway and roads that will create the biggest added value and legacy for the country. Besides making intra country transport more efficient, it will rehabilitate the railways and impose a efficiency regime that the public sector has never experienced. There will be an increase of employment as well as an imposed discipline from the Chinese to ensure that this connectivity remains uninterrupted.

One must bear in mind that this is not free aid from the Chinese government to its friends in Pakistan. Effectively the government and the people of Pakistan are paying for this necessary and long overdue infrastructure enhancement through a combination of low interest (and in some cases, zero %) loans and the IMF has already warned that Pakistan must remain extremely diligent in maintaining and managing its internal and external flows especially in view of the size of the CPEC projects.

By underwriting the bulk of the financing requirements under the CPEC projects, the Chinese government is going where no other government has gone before with such quantum. On paper, there are a number of apparent benefits to the Chinese. They gain access to a new seaport next to the Gulf and the origin of most of their oil imports — all of the Chinese ports are located on the eastern board of the country where the population density is highest. Road linkage to Kashgar allows the Chinese to focus industrial development in the country’s western region (where population density is the lowest).

In actuality, it is not certain that these aims will be financially viable or yield enough economic, social and political returns to deal with the efforts. It does, however, create definite economic benefits for the Chinese contracting companies involved and gives China leverage through financial diplomacy as well as countering closer US/India ties.

The success of the CPEC projects will no doubt lie in their completion, maintenance and ability to materialize sufficient tangible growth to allow a repayment of the loans without hampering an already over burdened financial structure.

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